RISING FARMLAND PRICES EXPECTED TO STABILIZE BY YEAR`S END

Richard OrrCHICAGO TRIBUNE

Stronger demand for farmland has boosted Midwest land values for the third consecutive quarter this year. The modest rise in land values that occurred in the first nine months of the year has, for the present at least, reversed the steep decline that started in 1981.

Some Midwest agricultural bankers expect land values to rise further in the fourth quarter. However, a large majority of bankers believe they will remain stable for the remainder of the year.

''Despite a modest upturn in land values during the first three quarters of this year, and despite expectations for a stronger demand and increased farm real estate transfers in the months ahead, bankers are cautious about characterizing the current land market as being in an uptrend,'' said Gary Benjamin, economic adviser and vice president of the Federal Reserve Bank of Chicago.

''Reflecting this, a large majority (74 percent) of the bankers expect that farmland values during the fourth quarter of this year will hold stable. Another 24 percent expect an uptrend, and only 2 percent expect a decline.

''On balance, the proportions expecting an uptrend in the next quarter are the highest for any quarterly survey since just prior to the 1981 peak in land values. Yet the large majority of bankers anticipating stable farmland values during the fourth quarter may well reflect a substantial degree of caution regarding the robustness of the apparent recovery now underway in farmland values.''

Benjamin`s comments came in the bank`s semi-monthly Agricultural Letter, which reported results of a recent survey of 525 agricultural bankers in the Seventh Federal Reserve District. The district includes the northern halves of Illinois and Indiana, all of Iowa, roughly the lower three-fifths of Wisconsin, and lower Michigan.

The survey indicated that, for the Seventh District as a whole, land values rose an average of 3.3 percent in the third quarter. At the end of September, values were up an average of about 3 percent from a year earlier.

However, third quarter increases varied widely among district states, ranging from no change in Michigan to increases of 4 percent in Illinois, 3 percent in Indiana, nearly 5.5 percent in Iowa, and 1 percent in Wisconsin.

For the 12 months ended Sept. 30, land values were up 4 percent in Illinois, 1 percent in Indiana, and 7 percent in Iowa. In that period values were down 1 percent in Michigan and 2 percent in Wisconsin.

''In looking ahead, over half of the bankers believe that the demand to acquire farmland during the next three to six months will exceed the year-earlier level, while only 10 percent foresee a weaker demand,'' Benjamin said. ''The remainder, about 38 percent, believe that the demand for farmland will be the same as a year ago.

''The expectations of a stronger demand to acquire farmland were equally apparent in the bankers` evaluation of the demand among farmers as in their judgement of the demand among nonfarmer investors. In conjunction with expectations of continued strength in the demand for farmland, close to half of the bankers (46 percent) believe that the volume of farm real estate transfers over the next three to six months will exceed year-earlier levels.

''Another 41 percent expect the volume of transfers will be about the same as a year ago, and 13 percent expect fewer transfers.''

The U.S. Department of Agriculture has estimated that between 1981 and early this year the national average ''real'' (inflation-adjusted) value of farmland per acre dropped 47 percent to the lowest level since 1967. In Iowa the ''real'' value of an acre of farmland dropped an average of 71 percent from the peak of early 1980 to early this year.